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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________to_________
Commission File Number: 0-27066
PHARMACYCLICS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 94-3148201
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
995 E. Arques Avenue, Sunnyvale, CA 94086-4521
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 774-0330
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ].
As of February 4, 1998, there were 12,242.439 shares of the Registrant's Common
Stock outstanding, par value $0.0001 per share.
This quarterly report on Form 10-Q consists of 30 pages of which this is page 1.
The Exhibit Index is located at page 27 .
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PHARMACYCLICS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C>
Item 1. Financial Statements (unaudited)
Condensed Balance Sheet as of December 31, 1997 and
June 30, 1997......................................................................... 3
Condensed Statement of Operations for the three and six months
ended December 31, 1997 and 1996...................................................... 4
Condensed Statement of Cash Flows for the six months ended
December 31, 1997 and 1996............................................................ 5
Notes to Condensed Financial Statements............................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Facts that May Affect
Future Operating Results.............................................................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................... 24
Item 2. Changes in Securities.................................................................. 24
Item 3. Defaults Upon Senior Securities........................................................ 24
Item 4. Submission of Matters to a Vote of Security Holders.................................... 24
Item 5. Other Information...................................................................... 25
Item 6. Exhibits and Reports on Form 8-K....................................................... 25
SIGNATURES.............................................................................................. 26
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHARMACYCLICS, INC.
(a development stage company)
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,794 $15,869
Short-term investments 23,417 14,958
Accounts receivable 214 --
Prepaid expenses and other current assets 208 216
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Total current assets 28,633 31,043
Long-term investments 5,700 6,103
Property and equipment, net 2,119 2,504
Other assets 53 57
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$36,505 $39,707
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,470 $ 1,323
Accrued liabilities 410 311
Current portion of capital lease obligations 336 768
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Total current liabilities 2,216 2,402
Capital lease obligations, less current portion 388 530
Deferred rent 59 79
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Total liabilities 2,663 3,011
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Stockholders' equity:
Preferred Stock -- --
Common Stock 1 1
Additional paid-in capital 75,155 74,911
Deficit accumulated during development stage (41,314) (38,216)
-------- --------
Total stockholders' equity 33,842 36,696
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$36,505 $39,707
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
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PHARMACYCLICS, INC.
(a development stage company)
CONDENSED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ ------------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenues:
License and grant revenues $2,700 $ 25 $2,700 $ 25
Contract revenue 214 -- 214 --
-------- -------- -------- --------
Total revenues 2,914 25 2,914 25
-------- -------- -------- --------
Operating expenses:
Research and development 3,317 2,481 6,082 4,937
General and administrative 512 360 900 997
-------- -------- -------- --------
Total operating expenses 3,829 2,841 6,982 5,934
-------- -------- -------- --------
Loss from operations (915) (2,816) (4,068) (5,909)
Interest income, net 472 221 970 434
-------- -------- -------- --------
Net loss $ (443) $(2,595) $(3,098) $(5,475)
======== ======== ======== ========
Basic and diluted net loss per share
(Note 2) $(0.04) $(0.29) $(0.31) $(0.63)
======== ======== ======== ========
Weighted average common and
common equivalent shares (Note 2) 10,187 8,885 10,152 8,718
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
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PHARMACYCLICS, INC.
(a development stage company)
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
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1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,098) $(5,475)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 442 391
Write-down of equipment 188 --
Changes in assets and liabilities:
Accounts receivable (214) --
Prepaid expenses and other assets 12 197
Accounts payable 147 92
Accrued liabilities 99 30
Deferred rent (20) (14)
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Net cash (used in) operating activities (2,444) (4,779)
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Cash flows from investing activities:
Purchases of equipment (245) --
Purchases of securities held-to-maturity (11,652) (17,212)
Proceeds from maturities of securities held-to-maturity 3,596 9,487
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Net cash (used in) investing activities (8,301) (7,725)
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Cash flows from financing activities:
Payments under capital lease obligations (574) (468)
Proceeds from sale of stock, net of issuance costs 244 8,225
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Net cash provided by (used in) financing activities (330) 7,757
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Net decrease in cash and cash equivalents (11,075) (4,747)
Cash and cash equivalents at the beginning of the period 15,869 13,950
-------- --------
Cash and cash equivalents at the end of the period $4,794 $9,203
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 50 $ 135
Equipment acquired under capital lease obligations $ -- $ 253
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
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PHARMACYCLICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Pharmacyclics, Inc.
(the "Company" or "Pharmacyclics") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not contain all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited condensed financial
statements reflect all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the Company's interim financial
information. These financial statements and notes should be read in conjunction
with the audited financial statements of the Company included in the Company's
Annual Report on Form 10-K for the year ended June 30, 1997 filed with the
Securities and Exchange Commission on September 30, 1997.
The results of operations for the six months ended December 31, 1997 are not
necessarily indicative of the operating results that may be reported for the
fiscal year ending June 30, 1998 or for any other future period.
REVENUE RECOGNITION
License fees are recognized as revenue when earned, as evidenced by achievement
of the specified milestones and the absence of any ongoing performance
obligation. Contract and grant revenues are recognized as earned, primarily
based on costs incurred to total estimated costs at completion, pursuant to the
terms of each agreement. License, contract and grant revenues are generally not
subject to repayment. Any amounts received in advance of performance are
recorded as deferred revenue.
RESEARCH AND DEVELOPMENT COSTS
Research and Development costs are expensed as incurred and include costs
associated with collaborative agreements.
CASH EQUIVALENTS AND INVESTMENTS
All highly liquid investments purchased with maturity at the date of purchase of
three months or less are considered to be cash equivalents. The Company has
classified its cash equivalents, and investments as "available for sale." For
all periods presented, the cost of investments approximates their fair market
value.
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NOTE 2 - NET LOSS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share ("SFAS 128") effective December 31, 1997. SFAS 128 requires
the presentation of both basic and diluted earnings per share. Basic earnings
per share is computed using the weighted average number of shares outstanding
during the period. Diluted earnings per share is computed using the weighted
average number of common and common stock equivalents outstanding during the
period. Common stock equivalents are excluded from the computation of diluted
earnings per share if their effect is antidilutive, except that, pursuant to
Securities and Exchange Commission Staff Accounting Bulletins, common stock
equivalents arising from stock options and warrants issued for nominal
consideration in the twelve month period prior to the Company's initial public
offering are included in the computation of both basic and diluted earnings per
share for fiscal 1996 as if they were outstanding for all periods presented
prior to the initial public offering.
NOTE 3 - PRIVATE EQUITY PLACEMENT
On November 11, 1996, Pharmacyclics sold 580,000 shares of unregistered common
stock to a single purchaser in a private placement. The shares were sold at a
price of $14.00 per share and no commissions were paid on the transaction. On
February 21, 1997, Pharmacyclics sold 862,190 shares of unregistered common
stock to four purchasers in a private placement. The shares were sold at $19.05
per share and no commission was paid on the transaction. Resale of shares
acquired in both placements were registered through a registration statement on
Form S-3 declared effective on April 22, 1997.
NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income." SFAS 130 establishes standards for
reporting comprehensive income and its components in a financial statement that
is displayed with the same prominence as other financial statements.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from nonowner sources. Examples of items to be included in
comprehensive income, which are currently excluded from the results of
operations, including foreign currency translation adjustments and unrealized
gain/loss on available-for-sale securities. The disclosures prescribed by SFAS
130 are effective for fiscal 1999. The Company does not expect such adoption to
have a material effect on its Financial Statements.
Also, in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related
Information." SFAS 131 establishes new standards for the way companies report
information about operating segments in annual financial statements. The
disclosures prescribed by SFAS 131 are effective for fiscal 1999. The Company
does not expect such adoption to have a material effect on the Notes to its
Financial Statements.
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NOTE 5 - COLLABORATION AGREEMENTS
Nycomed Collaboration. In October 1997, the Company entered into an agreement
with Nycomed Imaging A/S ("Nycomed"), which acquired exclusive sales and
marketing rights to LUTRIN(TM) Photosensitizer for cancer indications in all
markets of the world excluding the United States, Canada and Japan. LUTRIN is a
lutetium texaphrin ("LuTex") molecule being developed as a photosensitizer for
use in photodynamic therapy of cancer. In exchange for these rights, Nycomed has
agreed to pay the Company up to approximately $14.0 million in license fees,
development costs (based upon an agreed budget), and milestone payments, related
to the initial cancer indications for LUTRIN to be developed by the Company and
Nycomed, in each case subject to attainment of certain development, clinical or
commercialization milestones. Approximately $14.0 million in additional
milestone payments and development costs (assuming similar costs and agreement
upon a similar budget) may be paid by Nycomed during the course of development
for subsequent cancer indications, if such indications are successfully
completed. Upon receipt of marketing approval, Nycomed will pay a royalty on
product sales. Phyarmacyclics is required to supply bulk drug substance through
its manufacturing collaboration with Celanese and Nycomed intended to produce
finished product for its and Pharmacyclics' use in its plant in Puerto Rico.
Alcon Collaboration. In December 1997, the Company entered into an evaluation
and license agreement with Alcon Pharmaceuticals Ltd. ("Alcon") under which its
affiliate Alcon acquired worldwide marketing rights to Lu-Tex for ophthalmology
indications. Alcon is a wholly-owned subsidiary of Nestle S.A. Alcon will
conduct and bear all costs for worldwide development and regulatory submissions
for ophthalmology indications of Lu-Tex. The Company received an up-front
payment and will receive payments based on completion of milestones, as well as
royalties on product sales. Pharmacyclics is required to supply bulk drug
substance through its manufacturing collaboration with Celanese and Alcon will
be responsible for formulation and packaging.
NOTE 6 - SUBSEQUENT EVENT
On February 4, 1998, the Company completed the public offering of 2,012,500
shares of its common stock at a price of $21.75 per share, which resulted in
gross proceeds to the Company of approximately $41.3 million.
GADOLITE(R) is a registered U.S. trademark of the Company and LUTRIN(TM) and
ANTRIN(TM) are trademarks of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Form 10-Q contains, in addition to historical information, the Company's
position regarding liquidity and capital resources, and forward looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward looking
statements. Factors that could cause or contribute to such differences include
those discussed in this section as well as those discussed elsewhere in the Form
10-Q.
RESULTS OF OPERATIONS
Revenues
Revenue was $2.9 million for the three and six month periods ended December 31,
1997, respectively, compared to $25,000 for the three and six months ended
December 31, 1996, respectively.
In the second quarter of fiscal 1998, the Company entered into two corporate
collaboration agreements. Under the first agreement, Nycomed acquired exclusive
sales and marketing rights to LUTRIN for treatment of cancer indications in all
markets of the world excluding the United States, Canada and Japan. LUTRIN is a
lutetium texaphyrin ("Lu-Tex") molecule being developed as a photosensitizer for
use in photodynamic therapy of cancer. In exchange for these rights, Nycomed has
agreed to pay an initial non-refundable license fee, milestone payments,
contract research and development costs and royalties on product sales. The
second agreement is an evaluation and license agreement with Alcon under which
Alcon acquired worldwide marketing rights to Lu-Tex for ophthalmology
indications. Alcon will conduct and bear all costs for worldwide development and
regulatory submissions for ophthalmology indications of Lu-Tex. The Company
received an initial, non-refundable, payment from Alcon and will receive
payments based on completion of milestones, as well as royalties on any future
product sales.
Approximately $2.7 million of license fee revenue in the second quarter of
fiscal 1998 was related to non-refundable license payments received from Nycomed
and Alcon and $214,000 of contract research and development revenue from
Nycomed. In fiscal 1997, $25,000 of license revenue was recognized from E-Z-EM,
Ltd. ("E-Z-EM") upon execution of a European sales and distribution agreement in
Europe for GADOLITE(R) ORAL SUSPENSION ("GADOLITE") and a milestone payment
received upon receipt of regulatory approval for marketing of GADOLITE in the
United Kingdom. The total recognized was net of royalty payments to The
University of Texas ("UT") since the products covered by the E-Z-EM agreement
incorporate the technology licensed by the Company from UT.
Research and Development
Research and development expenses increased to $3.3 million and $6.1 million for
the three and six months ended December 31, 1997, respectively, compared to $2.5
million and $4.9 million for the three and six months ended December 31, 1996,
respectively. The increase in research and development expenses in both periods
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was attributable primarily to the hiring of additional research and development
personnel and increased drug and device development costs associated with
increased clinical trial activity. The Company expects research and development
spending to increase over the next several years as product development,
clinical trials and core research efforts continue to expand.
General and Administrative
General and administrative expenses increased to $512,000 in the quarter ended
December 31, 1997, compared to $360,000 in the quarter ended December 31, 1996.
The increase was primarily related to increases in personnel and related
expenses. For the six months ended December 31, 1997, general and administrative
expenses decreased to $900,000 as compared $997,000 in the six months ended
December 31, 1996. The decrease is attributable to approximately $300,000 of
financing costs incurred in the first quarter of fiscal 1997 related to a
planned public financing which was subsequently withdrawn due to market
conditions.
Interest income, Net
Interest income, net increased to $472,000 and $970,000 in the three and six
months ended December 31, 1997, respectively, compared to $221,000 and $434,000
for the three and six months ended December 31, 1996, respectively. The increase
in both periods was primarily attributable to increased investment balances
resulting from the private equity placements during fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of working capital have been primarily private
and public equity financings and proceeds from collaborative research and
development agreements, as well as grant revenues, interest income and property
and equipment financings.
As of December 31, 1997, the Company had approximately $33.9 million in cash,
cash equivalents and investments. Net cash used in operating activities of $2.4
million during the six months ended December 31, 1997 resulted primarily from
the net loss incurred during that period, partially offset by non-cash
depreciation expense and a write-down of equipment. Net cash used in operating
activities of $4.8 million during the six months ended December 31, 1996
reflects the net loss of $5.5 million, partially offset by non-cash depreciation
expense and a decrease in prepaid expenses and other assets.
Cash used in investing activities of $8.3 million and $7.7 million for the six
months ended December 31, 1997 and 1996, respectively, consisted primarily of
purchases of investment securities, net of maturities. Net cash used in
financing activities of $0.3 million for the six months ended December 31, 1997
consisted of $0.6 million of payments under capital lease obligations offset by
$0.3 million of net proceeds from the sale of stock. Net cash provided by
financing activities of $7.8 million for the six months ended December 31, 1996
consisted primarily of $8.2 million of net proceeds from the sale of stock,
including proceeds from the exercise of stock options.
In November 1996, the Company completed a private placement of 580,000 shares of
Common Stock at $14.00 per share for net proceeds of $8.1 million. In February
1997, the Company completed a private placement of 862,190 shares of Common
Stock at $19.05 per share for net proceeds of $16.4 million.
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In February 1998, the Company sold 2,012,500 shares of its common stock at a
price of $21.75 per share which resulted in gross proceeds to the Company of
approximately $41.3 million.
The Company expects to incur ongoing expenditures that may not only fluctuate
from quarter to quarter, but are expected to increase as the levels of clinical
activities for the Company's products increases. As a result, the Company
expects to report increased expenses for research and development and general
and administrative activities for at least the next several years. The Company
currently anticipates, based upon the current status of its product development
and commercialization plans, that the net proceeds of its February 1998 public
offering together with its cash, cash equivalents, and investments will provide
funding for the Company's operations through at least the calendar year 2000.
However, the Company's actual capital requirements will depend on many factors,
including the status of product development; the time and cost involved in
conducting clinical trials and obtaining regulatory approvals; filing,
prosecuting and enforcing patent claims; competing technological and market
developments; and the ability of the Company to market and distribute its
products and establish new collaborative and licensing arrangements.
The Company's forecast of the period of time through which its financial
resources will be adequate to support its operations is a forward-looking
statement that involves risks and uncertainties, and actual results could vary
materially. The factors described above will impact the Company's future capital
requirements and the adequacy of its available funds. The Company may be
required to raise additional funds through public or private financings,
collaborative relationships or other arrangements. There can be no assurance
that such additional funding, if needed, will be available on terms attractive
to the Company, or at all. Furthermore, any additional equity financing may be
dilutive to existing stockholders and debt financing, if available, may involve
restrictive covenants. Collaborative arrangements, if necessary to raise
additional funds, may require the Company to relinquish rights to certain of its
technologies, products or marketing territories. The failure of the Company to
raise capital when needed could have a material adverse effect on the Company's
business, financial condition and results of operations.
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FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
UNCERTAINTIES RELATED TO CLINICAL TRIALS AND PRODUCT DEVELOPMENT
All of the Company's product candidates are in development and have not
generated product sales revenue to date, and there can be no assurance that any
of the Company's products under development will be commercialized or will
generate product sales revenue in the future. To achieve profitable operations,
the Company, alone or with collaborative partners, must successfully research,
develop, obtain regulatory approval for, manufacture, introduce, market and
distribute its products under development. The time frame necessary to achieve
these goals for any individual product is long and uncertain. Most of the
Company's product candidates are generally in early stages of development and
will require significant additional research and development, preclinical and
clinical testing and regulatory approval prior to commercialization. A number of
factors will impact the timing and ability of the Company to successfully
complete clinical trials for its products under development.
Before obtaining regulatory clearance for the commercial sale of any of its
products under development, the Company must demonstrate through preclinical
studies and clinical trials that the potential product is safe and efficacious
for use in humans for each target indication. Pharmacyclics has conducted and
plans to continue extensive and costly clinical trials to assess the safety and
efficacy of its potential products. There can be no assurance that the Company
will be permitted to undertake or continue its intended clinical trials for any
of its potential products or, if permitted, that such products will be
demonstrated to be safe and efficacious.
The rate of completion of the Company's clinical trials is dependent upon, among
other factors, the rate of patient enrollment. Patient enrollment is a function
of many factors, including the nature of the Company's clinical trial protocols,
existence of competing protocols, size and longevity of the target patient
population, proximity of patients to clinical sites and eligibility criteria for
the trials. There can be no assurance that the Company will obtain adequate
levels of patient enrollment in its clinical trials. Delays in planned patient
enrollment may result in increased costs, delays or termination of clinical
trials, which could have a material adverse affect on the Company. In addition,
the U.S. Food and Drug Administration ("FDA") may suspend clinical trials at any
time if, among other reasons, it concludes that patients participating in such
trials are being exposed to unacceptable health risks.
The Company also relies on third parties to assist the Company in conducting,
overseeing and monitoring its clinical trials. If such third parties fail to
perform under their agreements with the Company or fail to meet regulatory
standards in the performance of their obligations under such agreements, such
clinical trials may be delayed or halted. The Company's reliance on assistance
from third parties with respect to its clinical trials is likely to increase as
the Company expands the number and scope of its clinical trials.
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Additionally, demands on the Company's clinical staff have been increasing and
are expected to continue to increase as a result of later-stage clinical trials
of its products in development and its monitoring of additional Phase I clinical
trials of Gd-Tex and LUTRIN for various indications which are being funded by
the NCI. There can be no assurance that the Company will be able to effectively
oversee and monitor these multiple clinical trials. The Company's inability to
effectively manage multiple concurrent clinical trials would result in increased
costs or delays of the Company's clinical trials. There can be no assurance that
the Company will be able to complete the necessary data and submit a new drug
application ("NDA") as scheduled even if clinical trials are completed or that
such application will be reviewed and cleared by the FDA in a timely manner, if
at all.
Data obtained from preclinical studies and clinical trials of the products under
development by the Company are not necessarily indicative of results that will
be obtained from subsequent or more extensive preclinical studies and clinical
trials. Moreover, such data is susceptible to varying interpretations which
could delay, limit or prevent regulatory approval. In advanced clinical
development, numerous factors may be involved that may lead to different results
in larger, later-stage trials from those obtained in earlier-stage trials. A
number of companies in the pharmaceutical industry, including biotechnology
companies, have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials. The failure to adequately demonstrate
the safety and efficacy of a product under development could delay or prevent
regulatory clearance of the potential product and would have a material adverse
effect on the Company. There can be no assurance that the Company's clinical
trials will demonstrate the sufficient levels of safety and efficacy necessary
to obtain the requisite regulatory approval or will result in marketable
products.
NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that, if approved for marketing, any of the Company's
products under development will achieve market acceptance. The degree of market
acceptance will depend upon a number of factors, including the receipt of
regulatory approvals, the establishment and demonstration in the medical
community of the clinical efficacy and safety of the Company's product
candidates and their potential advantages over existing therapeutic products,
diagnostic and/or imaging techniques, and pricing and reimbursement policies of
government and third-party payors. There can be no assurance that physicians,
patients, payors or the medical community in general will accept and utilize any
products that may be developed by the Company.
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HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred significant operating losses since its inception in
1991 and, as of December 31, 1997, had an accumulated deficit of approximately
$41.3 million. The Company expects to continue to incur significant operating
losses over the next several years as it continues to incur increasing costs of
research and development, in addition to costs related to clinical trials and
manufacturing activities. The Company's ability to achieve profitability is
dependent upon its ability, alone or with others, to successfully complete the
development of its proposed products, obtain the required regulatory clearances
and manufacture and market its proposed products. To date, the Company has not
generated revenue from the commercial sale of its products and does not expect
to receive any such revenue in the near future. All revenues to date have
resulted primarily from non-refundable license, contract research and
development and milestone payments and, to a lesser extent, funding from one
government research grant.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS
The manufacture and marketing of the Company's products and its research and
development activities are subject to extensive regulation for safety, efficacy
and quality by numerous government authorities in the United States and abroad.
Before receiving FDA clearance to market a product, the Company will have to
demonstrate that the product is safe and effective on the patient population
that will be treated. Clinical trials, manufacturing and marketing of products
are subject to the rigorous testing and approval process of the FDA and
equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic
Act and other federal and state statutes and regulations govern and influence
the testing, manufacture, labeling, advertising, distribution and promotion of
drugs and medical devices. As a result, clinical trials and regulatory approval
can take a number of years to accomplish and require the expenditure of
substantial resources. Data obtained from clinical trials are susceptible to
varying interpretations which could delay, limit or prevent regulatory
clearances. In addition, delays or rejections may be encountered based upon
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Similar delays also may be
encountered in foreign countries. There can be no assurance that requisite FDA
approvals or those of foreign regulatory authorities will be obtained on a
timely basis, if at all, or that any approvals granted will cover the clinical
indications for which the Company may seek approval. Marketing or promoting a
drug for an unapproved indication is subject to very strict controls under The
Food and Drug Administration Modernization Act of 1997 (the "1997 FDA Act").
Furthermore, clearance may entail ongoing requirements for postmarketing
studies. The manufacture and marketing of drugs are subject to continuing FDA
and foreign regulatory review and later discovery of previously unknown issues
with a product, manufacturer or facility may result in restrictions, including
withdrawal of the product from the market. Failure to obtain or maintain
requisite governmental approvals, failure to obtain approvals of the clinically
intended uses or the identification of adverse side effects of the Company's
products under development could delay or preclude the Company from further
developing a particular product or from
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marketing its products, or could limit the commercial use of its products, any
of which would have a material adverse effect on the Company's business,
financial condition and results of operations.
Manufacturers of drugs also are required to comply with the applicable FDA good
manufacturing practice ("GMP") regulations, which include requirements relating
to quality control and quality assurance as well as the corresponding
maintenance of records and documentation. Manufacturing facilities are subject
to inspection by the FDA, including unannounced inspection, and must be licensed
before they can be used in commercial manufacturing of the Company's products.
There can be no assurance that the Company or its present or future suppliers
will be able to comply with the applicable GMP regulations and other FDA
regulatory requirements.
The Company may elect to seek approval of Gd-Tex and LUTRIN under the fast track
("Fast Track") provisions codified in the 1997 FDA Act. Significant uncertainty
exists as to the extent to which such changes will result in accelerated review
and approval. Further, the FDA has not made available comprehensive information
with respect to the 1997 FDA Act and retains considerable discretion to
determine eligibility for Fast Track review and approval. Accordingly, the FDA
could employ such discretion to deny eligibility of Gd-Tex or LUTRIN as a
candidate for Fast Track review or to require additional clinical trials or
other information before approving either product. A determination that Gd-Tex
or LUTRIN is not eligible for accelerated review or delays and additional
expenses associated with generating a response to any such request for
additional trials could have a material adverse effect on the Company.
In addition to the drug approval requirements applicable to the Company's LUTRIN
and ANTRIN(TM) Photosensitizer products for photodynamic therapy of certain
cancers and atherosclerosis, the Company will also need to obtain the approval
of the FDA and other foreign regulatory authorities for the laser, light
emitting diode ("LED") or associated light delivery devices used in such
treatments. Such device approval requires additional regulatory submissions both
by the Company and by the manufacturers of such devices that must include
clinical data obtained from the use of such light delivery devices, and may
result in additional delays or difficulties in obtaining approval for the use of
LUTRIN or ANTRIN as photosensitizers. Manufacturers of such light delivery
devices currently are under no obligation to the Company to file or pursue such
applications and any delay or refusal on their part to do so could have a
material adverse affect on the Company.
The Company submitted an NDA for its GADOLITE product in September 1995 and
received an "approvable" letter in December 1996 which included a number of
issues that must be addressed by the Company. The Company is in the process of
addressing these issues, which also require resolution of current manufacturing
uncertainties relating to GADOLITE. These issues are expected to require at
least 18 months to resolve before GADOLITE can be successfully manufactured and
marketed. There can be no assurance that the FDA will decide that the NDA
satisfies the criteria for approval. In 1996, the Company
15
<PAGE> 16
received approval from the Medicines Control Agency to market GADOLITE in the
United Kingdom. The Company will not market GADOLITE in Europe until all issues
with the product are resolved with the FDA. Although the process for regulatory
approval in Western Europe is similar to that in the United States, there can be
no assurance that authorization to market GADOLITE in other member states would
be granted under the European Union's mutual recognition procedure. See "--
Limited Manufacturing Experience; Dependence Upon Contract Manufacturers."
UNCERTAINTIES REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company believes its success depends upon, among other things, the Company's
ability to protect its proprietary position with respect to technology that the
Company believes is important to its business. The Company, therefore,
aggressively pursues, prosecutes, protects, and defends patent applications,
issued patents, trade secrets, and licensed patent and trade secret rights
covering certain aspects of the Company's technology.
The Company's patents, patent applications, and licensed patent rights variously
cover composition of matter and method of use claims relating to certain
compounds and their applications and therapeutic uses. The Company owns or has
license rights to 47 issued U.S. patents, eight additional allowed patent
applications in the United States, and 21 other pending U.S. patent
applications. The issued U.S. patents expire between 2009 and 2014. The Company
is also the owner or licensee of five issued non-U.S. patents (i.e., two patents
issued in Europe, two patents issued in Australia, and one patent issued in New
Zealand) and 74 pending non-U.S. patent applications filed among Europe, Japan
and certain other countries and under the Patent Cooperation Treaty ("PCT")
designating all PCT member countries. There can be no assurance that the Company
will have continued success in prosecuting its patent applications or that
patents will issue in respect of those patent applications. Even if patents are
issued and maintained, there can be no assurance that the patents are or will be
of adequate scope to benefit the Company, or that any such patents would be
upheld as valid and enforceable with respect to third parties.
Because there are a number of third-party patents issued and third-party patent
applications filed relating to biometallic and expanded porphyrin chemistries,
the Company believes there is some risk that current and potential competitors
and other third parties have filed or in the future will file applications for,
or have received or in the future will receive, patents and will obtain
additional proprietary rights relating to similar or even the same compositions,
methods, or designs of the Company or its products. It is pertinent, however,
that patents and patent applications owned or licensed by the Company cover
various aspects, ranging from base compositions, to methods of manufacture, to
processes for use and related applications, of the biometallic and expanded
porphyrin chemistries peculiar to the Company's products. In any event, if any
third-party patents include claims that are alleged to be infringed and are
upheld as valid and enforceable, the Company could nonetheless be prevented from
practicing the subject matter claimed in such patents, or would be required to
16
<PAGE> 17
obtain licenses from the patent owners of each of such patents or to redesign
its products or processes to avoid infringement. There can be no assurance that
any such licenses would be available or, if available, would be on terms
acceptable to the Company, or that the Company would be successful in any
attempt to redesign its products or processes to avoid infringement. Litigation
or other legal proceedings may be necessary to defend against claims of
infringement, to enforce patents of the Company, or to protect trade secrets,
and could result in substantial cost to, and diversion of efforts by, the
Company.
The Company is aware of several U.S. patents owned or licensed to Schering AG
("Schering") that relate to the use of agents that enhance magnetic resonance
imaging ("MRI") scans. The Company has obtained an opinion of special patent
counsel that the technologies employed by the Company for its imaging product
under development and MRI detectable compounds do not infringe the claims of
such patents, however, there can be no assurances that Schering would not allege
infringement of one or more of those patents. If infringement were alleged, a
legal determination of the infringement of any such patents by any Company
product having image-enhancing properties could have a material adverse affect
on the Company's business. Further, any allegation by Schering of infringement
of patent rights by the Company would likely result in significant legal costs
and require substantial management resources. Schering has sent communications
to the Company suggesting that GADOLITE may infringe certain of such Schering
patents. The Company is aware that Schering has asserted patent rights against
at least one other company in the contrast agent imaging market and that a
number of companies have entered into licensing arrangements with Schering with
respect to one or more of such patents. There can be no assurance that the
Company would be able to obtain a license from Schering, if required. Even if a
license could be obtained, there can be no assurance that the Company would
receive commercially reasonable terms.
The Company also relies upon trade secrets, technical know-how and continuing
technological innovation to develop and maintain its competitive position. It is
the Company's policy to require its employees, consultants and advisors to
execute appropriate confidentiality and assignment-of-inventions agreements in
connection with their employment, consulting or advisory relationships with the
Company, and each of such persons has executed such type of agreement. These
agreements provide that all confidential information developed or made known to
the individual during the course of the individual's relationship with the
Company is to be kept confidential and not disclosed to third parties except in
specific circumstances, and in the case of employees, provide that all
inventions attributable to the individual during such employment shall be the
exclusive property of the Company. There can be no assurance that these
agreements will not be breached, and, in some instances, there may not be any
appropriate remedy available to the Company for breach of the agreements.
Furthermore, no assurance can be given that competitors will not independently
develop substantially equivalent proprietary information and techniques, reverse
engineer such information and techniques, or otherwise gain access to the
Company's proprietary technology, or that the Company can meaningfully protect
the rights in unpatented proprietary technology.
17
<PAGE> 18
DEPENDENCE UPON THIRD PARTIES
The Company is dependent upon third parties for support in product development,
manufacturing, marketing and distribution. Pursuant to its collaboration with
Nycomed, the Company is dependent upon Nycomed for a portion of its LUTRIN
development costs in the form of milestone payments, and for the
commercialization, when and if LUTRIN is approved, of this product outside the
United States, Canada and Japan. In the field of macular degeneration, the
Company is dependent upon Alcon for preclinical and clinical studies, regulatory
filings and sales and marketing of Lu-Tex for ophthalmology indications
worldwide. The Company has entered into agreements with E-Z-EM, Ltd. and E-Z-EM,
Inc. (together "E-Z-EM") for sales, marketing and distribution of GADOLITE in
Europe and North America. These agreements may be terminated by E-Z-EM, Alcon or
Nycomed, respectively, at their election. There can be no assurance that any of
these parties will fulfill their obligations in a manner that maximizes revenues
for the Company. The failure by the Company to receive milestone payments or any
reduction or discontinuance of efforts by the Company's partners or the
termination of these alliances could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is also dependent upon the National Cancer Institute ("NCI") for the
sponsoring and funding of certain of the clinical trials of the Company's Gd-Tex
radiation sensitizer and LUTRIN photosensitizer products in development. There
can be no assurance that the NCI will enlist support for all such trials or that
it will continue its funding. If such trials are not supported by the NCI, the
Company may be required to fund its own continuation of such trials or reduce
the number of indications for which it would pursue clinical trials.
There can be no assurance that the Company will be successful in entering into
additional strategic alliances for the development or commercialization of other
product candidates, nor that any such alliances, if entered into, will be on
terms favorable to the Company or that they will ultimately be successful.
The Company has no expertise in the development of light sources and associated
light delivery devices required for the Company's photoangioplasty and
photodynamic therapy products under development. Successful development,
manufacturing, approval and distribution of the Company's photosensitization
products will require third party participation for the required light sources,
associated light delivery devices and other equipment. The Company currently
obtains lasers from Coherent Inc., Laserscope, Inc. and Diomed, Inc.; LEDs from
Quantum Devices, Inc.; and cylindrically diffusing light fibers from Rare Earth
Medical on a purchase order basis, and such entities are under no obligation to
continue to deliver light devices on an ongoing basis. Failure to maintain such
relationships may require the Company to develop additional supply sources which
may require additional regulatory approvals and could materially delay
commercialization of the Company's LUTRIN and ANTRIN products under development.
There can be no assurance that the Company will be able to establish or maintain
relationships with other supply sources on a commercially reasonable basis, if
at
18
<PAGE> 19
all, or that the enabling devices will receive regulatory approval for use in
photoangioplasty or photodynamic therapy.
LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE UPON CONTRACT MANUFACTURERS
The Company must manufacture its products in commercial quantities either
directly or through third parties, in compliance with regulatory requirements
and at an acceptable cost. Except for Gd-Tex, LUTRIN and ANTRIN bulk drug
substances, which are the subject of a manufacturing and supply agreement with
Hoechst Celanese Corporation, and GADOLITE, which has been the subject of a
manufacturing and supply agreement with Glaxo-Wellcome Co., the Company does not
have access to the manufacturing capacity necessary to provide clinical and
commercial quantities of the Company's products. Any failure by these third
parties to supply the Company's or the NCI's requirements for clinical trial
materials would have a material adverse effect upon the completion of such
trials and could therefore have a material adverse effect on the Company. The
Company's agreement with Glaxo for manufacturing and supply of GADOLITE may be
terminated because of delay in FDA approval for GADOLITE. The Company may be
required to change manufacturing sources for GADOLITE. There can be no assurance
that the Company can renegotiate the manufacturing agreement with Glaxo or
negotiate a satisfactory manufacturing agreement with another supplier, that
Glaxo would successfully manufacture sufficient supplies of GADOLITE, or that,
if the Company switched suppliers, such a manufacturing change would not delay
the Company's approval and commercialization plans for GADOLITE. Access to such
manufacturing capacity is necessary for the Company to conduct clinical trials,
obtain regulatory approval and commercialize its products. The Company is
engaged in preliminary discussions with a number of manufacturers of parenteral
products regarding process development and validation, filling, labeling and
packaging of the finished dosage form of Gd-Tex, LUTRIN and ANTRIN. A failure to
successfully complete any such agreement could, if the Company could not locate
alternate manufacturing capabilities, have a material adverse impact on the
Company's business, financial condition and results of operations. Prior to
regulatory approval of the Company's products under development, the Company
intends to negotiate supply agreements with manufacturers who will have the
ability to manufacture, fill, label and package such materials prior to
commercial introduction of such products. There are, however, only a limited
number of contract manufacturers that operate under current federal and state
GMP regulations and are capable of manufacturing the Company's products.
Accordingly, there can be no assurance that the Company will be able to enter
into supply agreements on commercially acceptable terms with manufacturers or
that the Company will enter into supply agreements with manufacturers who will
be able to deliver supplies in appropriate quantity and quality to develop and
commercialize its products. Any interruption of supply of its products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
19
<PAGE> 20
LACK OF MARKETING AND SALES EXPERIENCE
The Company currently does not have marketing, sales or distribution experience.
Therefore, to service markets in which it has retained sales and marketing
rights and in the event either of the above agreements is terminated, the
Company must develop a sales force with technical expertise. The Company does
not have any experience in developing, training or managing a sales force. The
Company will incur substantial additional expenses in developing, training and
managing such an organization. There can be no assurance that the Company will
be able to build such a sales force, that the cost of establishing such a sales
force will not exceed any product revenues, or that the Company's direct
marketing and sales efforts will be successful. In addition, the Company
competes with many other companies that currently have extensive and well-funded
marketing and sales operations. There can be no assurance that the Company's
marketing and sales efforts will compete successfully against such other
companies.
RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION
The pharmaceutical industry is subject to rapid and substantial technological
change. Technological competition in the industry from pharmaceutical and
biotechnology companies, universities, governmental entities and others
diversifying into the field is intense and is expected to increase. Many of
these entities have significantly greater research and development capabilities
than the Company, as well as substantially more marketing, manufacturing,
financial and managerial resources. These entities represent significant
competition for the Company. Acquisitions of, or investments in, competing
pharmaceutical or biotechnology companies by large corporations could increase
such competitors' financial, marketing, manufacturing and other resources. The
Company is a relatively new enterprise and is engaged in the development of
novel therapeutic technologies. As a result its resources are limited and it may
experience technical challenges inherent in such novel technologies. There can
be no assurance that developments of others will not render the Company's
products under development or technologies noncompetitive or obsolete, or that
the Company will be able to keep pace with technological developments or other
market factors. Competitors have developed or are in the process of developing
technologies that are, or in the future may be, the basis for competitive
products. Some of these products may have an entirely different approach or
means of accomplishing similar therapeutic, diagnostic and/or imaging effects
than products being developed by the Company. The Company is aware that one of
its competitors in the market for photodynamic therapy drugs has received
marketing approval of a product for certain indications in the United States and
other countries. There can be no assurance that the Company's competitors will
not develop products that are safer, more effective or less costly than the
products developed by the Company and, therefore, present a serious competitive
threat to the Company's product offerings.
The medical indications for which the Company is developing its therapeutic
products can also be treated, in the case of cancer, by surgery, radiation and
chemotherapy, and in the case of atherosclerosis, by surgery (e.g., bypass),
angioplasty, atherectomy, the use of stents and drug therapy. These treatments
are widely
20
<PAGE> 21
accepted in the medical community and have a long history of use. In addition,
technological advances with other therapies for cancer and atherosclerosis could
make such other therapies more efficacious or cost-effective than Gd-Tex, LUTRIN
or ANTRIN and could render the Company's technology noncompetitive or obsolete.
Also, there can be no assurance that physicians will use Gd-Tex as a radiation
sensitizer or chemosensitizer in cancer treatment, LUTRIN as a photosensitizer
in cancer treatment or ANTRIN as a photosensitizer in photoangioplasty of
atherosclerosis to replace or supplement established treatments for such
diseases or that the therapeutic products the Company is developing will become
competitive with current or future treatments. Further, some companies
developing photodynamic therapy products are developing specialized light
delivery devices for such products, which, when integrated with their product
offering, may afford them a competitive advantage relative to the Company's
strategy of sourcing such devices from third parties.
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ACCESS TO CAPITAL MARKETS
The Company has expended and will continue to expend substantial funds to
complete the research, development and clinical testing of its products. The
Company will require additional funds for these purposes, to establish
additional clinical- and commercial-scale manufacturing arrangements and to
provide for the marketing and distribution of its products. The Company's future
capital requirements will depend on many factors, including, among others,
continued scientific progress of its research and development programs, the
ability of the Company to establish additional collaborative arrangements,
changes in its existing collaborative relationships, progress with preclinical
studies and clinical trials, the time and costs involved in obtaining regulatory
clearance, the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and competing technological and market developments. The
Company believes that with its cash, cash equivalents, short-and long-term
investments, together with the gross proceeds of $41.3 million resulting from
the sale of 2,012,500 shares of common stock in February 1998, will be adequate
to fund the Company's operations through at least the calendar year 2000.
However, the Company's actual capital requirements will depend on many factors,
including the status of product development; the time and cost involved in
conducting clinical trials and obtaining regulatory approvals; filing,
prosecuting and enforcing patent claims; competing technological and market
developments; and the ability of the Company to market and distribute its
products and establish new collaborative and licensing arrangements. The Company
may seek to raise any necessary additional funds through equity or debt
financings, collaborative arrangements with corporate partners or other sources
which may be dilutive to existing stockholders. In addition, in the event that
additional funds are obtained through arrangements with collaborative partners
or other partners, such arrangements may require the Company to relinquish
rights to certain of its technologies, product candidates or products under
development that the Company would otherwise seek to develop or commercialize
itself. No assurance can be given that such additional funds will be available
on acceptable terms, if at all. If adequate funds are not available from
operations or additional sources of financing, the Company may be required to
delay, reduce
21
<PAGE> 22
the scope of or eliminate one or more of its research or development programs
which would materially and adversely affect the Company's business, financial
condition and results of operations.
DEPENDENCE UPON QUALIFIED AND KEY PERSONNEL
The Company's ability to maintain its competitive position depends on its
ability to attract and retain qualified management and scientific personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to continue to attract or retain such persons. The loss
of key personnel or the failure to obtain additional needed personnel or
expertise could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company relies
on consultants and advisors to assist in formulating its research and
development strategy. All of the Company's consultants and advisors are employed
by entities other than the Company and may have commitments to, or consulting or
advisory contracts with, other entities that may affect their ability to
contribute to the Company.
UNCERTAINTIES REGARDING HEALTH CARE REIMBURSEMENT AND REFORM
The future revenues and profitability of pharmaceutical and related companies as
well as the availability of capital to such companies may be affected by the
continuing efforts of government and third-party payors to contain or reduce
costs of health care through various means. For example, in certain foreign
markets pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States, given recent federal and state
government initiatives directed at lowering the total cost of health care, it is
likely that the U.S. Congress and state legislatures will continue to focus on
health care reform and the cost of prescription pharmaceuticals and on the
reform of the Medicare and Medicaid systems. While the Company cannot predict
whether any such legislative or regulatory proposals will be adopted, the
announcement or adoption of such proposals could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company's ability to commercialize its products successfully will depend in
part on the extent to which appropriate reimbursement levels for the cost of
such products and related treatment are obtained by governmental authorities,
private health insurers and other organizations, such as health maintenance
organizations ("HMOs"). Third-party payors are increasingly challenging the
prices charged for medical products and services. Also, the trend toward managed
health care in the United States and the concurrent growth of organizations such
as HMOs, which could control or significantly influence the purchase of health
care services and products, as well as legislative proposals to reform health
care or reduce government insurance programs, may all result in lower prices for
the Company's products. The cost containment measures that health care payors
and providers are instituting and the effect of any health care reform could
materially adversely affect the Company's ability to operate profitably.
22
<PAGE> 23
PRODUCT LIABILITY EXPOSURE
The testing, manufacture, marketing and sale of the products under development
by the Company entail an inherent risk that product liability claims will be
asserted against the Company. Although the Company is insured against such risks
up to a $5.0 million annual aggregate limit in connection with clinical trials
and commercial sales of its products under development, there can be no
assurance that the Company's present product liability insurance is adequate. A
successful product liability claim in excess of the Company's insurance coverage
could have a material adverse effect on the Company's business, financial
condition and results of operations and may prevent the Company from obtaining
adequate product liability insurance in the future on commercially desirable or
reasonable terms. In addition, there can be no assurance that product liability
coverage will continue to be available in sufficient amounts or at an acceptable
cost. An inability to obtain sufficient insurance coverage at an acceptable cost
or otherwise to protect against potential product liability claims could prevent
or inhibit the commercialization of pharmaceutical products developed by the
Company. A product liability claim or recall would have a material adverse
effect on the Company's business, financial condition and results of operations.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS
In connection with its research and development activities and its manufacture
of materials and products under development, the Company is subject to federal,
state and local laws, rules, regulations and policies governing the use,
generation, manufacture, storage, air emission, effluent discharge, handling and
disposal of certain materials, biological specimens and wastes. Although the
Company believes that it has complied with the applicable laws, regulations and
policies in all material respects and has not been required to take significant
action to correct any material noncompliance, there can be no assurance that the
Company will not be required to incur significant costs to comply with
environmental and health and safety regulations in the future. The Company's
research and development involves the controlled use of hazardous materials,
including but not limited to certain hazardous chemicals and radioactive
materials. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
occurrence, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company.
23
<PAGE> 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
On December 17, 1997, at the Company's 1997 Annual Meeting of Stockholders, the
following matters were submitted and voted on by stockholders and were adopted:
A. The election of: Thomas D. Kiley, Joseph S. Lacob, Patrick
F. Latterell, Richard A. Miller, Joseph C. Scodari and
Craig C. Taylor by the stockholders to serve on the board
of Directors.
The results of the vote are as follows:
<TABLE>
<CAPTION>
Total Vote for Total Vote Withheld
Each Director from Each Director
--------- -------
<S> <C> <C>
Thomas D. Kiley 8,428,513 221,676
Joseph S. Lacob 8,428,513 221,676
Patrick F. Latterell 8,430,239 219,950
Richard A. Miller, MD 8,617,439 32,750
Joseph C. Scodari 8,617,439 32,750
Craig C. Taylor 8,430,239 219,950
</TABLE>
B. The amendment of the Company's 1995 Stock Option Plan in
order to increase the total number of shares of common
stock authorized for issuance over the term of the Plan by
an additional 500,000 shares.
The results of the vote are as follows:
<TABLE>
For Against Abstain
--- ------- -------
<S> <C> <C>
4,619,013 1,309,814 23,980
</TABLE>
C. The amendment of the Company's Employee Stock Purchase
Plan in order to increase the total number of shares of
common stock authorized for issuance over the term of the
Plan by an additional 50,000 shares.
The results of the vote are as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
5,272,780 665,927 14,100
</TABLE>
24
<PAGE> 25
D. The ratification of the appointment of Price Waterhouse
LLP as the Company's independent accountants for the
fiscal year ending June 30, 1998.
The results of the vote are as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
8,641,941 4,248 4,000
</TABLE>
Item 5. Other information.
None
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
11.1 - Computation of Net Loss Per Share
27 - Financial Data Schedule
b. Reports on Form 8-K.
None
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHARMACYCLICS, INC.
(Registrant)
Date: February 12 , 1998 By: /s/ Richard A. Miller, M.D.
----------------------------
Richard A. Miller, M.D.
President and Chief Executive Officer
Date: February 12, 1998 By: /s/ Leiv Lea
----------------------------
Leiv Lea
Vice President, Finance and Administration
26
<PAGE> 27
EXHIBIT INDEX
Exhibit
No.
- -------
11.1 Computation of Net Loss Per Share
27 Financial Data Schedule
27
<PAGE> 1
EXHIBIT 11.1
PHARMACYCLICS, INC.
(a development stage company)
COMPUTATION OF NET LOSS PER SHARE
(in thousands, except per share data, unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31, December 31,
---------------------- ----------------------
1997 1996 1997 1996
------ -------- ------- -------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 10,187 8,885 10,152 8,718
====== ======== ======= =======
Weighted average common and
common equivalent shares 10,187 8,885 10,152 8,718
====== ======== ======= =======
Net loss $ (443) $ (2,595) $(3,098) $(5,475)
====== ======== ======= =======
Basic and diluted net loss per share $(0.04) $ (0.29) $ (0.31) $ (0.63)
====== ======== ======= =======
</TABLE>
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED BALANCE SHEET AND UNAUDITED CONDENSED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,794
<SECURITIES> 29,117
<RECEIVABLES> 214
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,633
<PP&E> 4,911
<DEPRECIATION> (2,792)
<TOTAL-ASSETS> 36,505
<CURRENT-LIABILITIES> 2,216
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 33,841
<TOTAL-LIABILITY-AND-EQUITY> 36,505
<SALES> 0
<TOTAL-REVENUES> 2,914
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,829
<LOSS-PROVISION> (915)
<INTEREST-EXPENSE> 472
<INCOME-PRETAX> (443)
<INCOME-TAX> 0
<INCOME-CONTINUING> (443)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (443)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
